Councillor and former police officer Eric Davy was against the debt write-off and tried to amend the committee's recommendations so Everyman Records was reported to the police.

After the meeting was adjourned and advice sought Davy retracted the amendment saying he may have spoken too early and the committee requested chief executive Clare Hadley report back to a full council.

Hadley will report on the specific arrangements with Everyman Records and festival contractors generally, what actions have been taken to recover the debt by the record company, and what changes have been made in the council's policies and procedures to avoid a similar situation arising.

The council's chief financial officer, Nikki Harrison, said writing off the debt was standard accounting practice to show a true reflection of where the council sat financially and for auditing purposes. Non-elected committee member and accountant John Murray confirmed this.

However, the legal obligation remained for Shaw to repay the debt, said Harrison.

The debt to the council is for ticket sales for the 2012 Nelson Arts Festival, last year's Opera in the Park and two Buskers in Nelson events.

Despite the big debt, which by April last year totalled $282,000, the council last year elected not to publicly disclose it, instead allowing Shaw to repay it at $700 a week.

A council public-excluded report in June last year said: "It is believed that Everyman Records, notwithstanding the significant debt owed to council, and its inability to repay that debt at this point in time, is currently still trading and selling tickets for other events (not related to council). If that is so then Everyman Records may well be trading while insolvent. This is potentially a matter of public interest.

"However, council will need to proceed cautiously since any public comment regarding the financial situation of Everyman Records would very likely jeopardise the chances of council recovering any part of its debt."

Falloon said the issue of trading while insolvent was one he had to look at under the Companies Act to see whether the director had fulfilled his duty.

However, in any such case he had to take into account a cost benefit analysis and it could cost upwards of $80,000 to take a case to court. That also had to be weighed against the probability of winning such an action and what could be expected to be received for creditors.

Usually there were insufficient funds for such an action.

Falloon said legislation needed to be changed regarding action against small companies.

"It's so expensive and difficult to get a good outcome from it. That's why the Companies Act needs to be changed and improved. The way it is now you are only going to get action with big ones like South Canterbury Finance which involve millions of dollars."

Falloon said any proceeds from the sale of remaining stock from the Everyman Records store would go to secured creditor, the ANZ, and even then there would be a shortfall. Shaw's other company, Migraine Distribution, was also placed in liquidation owing $122,700.